Tuesday, October 18, 2011

South-East Asia News:China Warns Vietnam, India & Philippines.

So China is unhappy? On Saturday, an important state-owned newspaper, ‘China Energy News’ reportedly warned India against dipping its toes in uncharted waters for unknown benefits.

“India’s energy strategy is slipping into an extremely dangerous whirlpool,” said a front-page commentary in the paper, which is published by the Communist Party mouthpiece the People’s Daily, according to Reuters.

Both China and India had huge energy needs, which had led them to compete in some parts of the world and cooperate in others, it said. “But oil companies must have a bottom line, which is to follow international law and respect the structure of international relations.”

“On the question of cooperation with Vietnam, the bottom line for Indian companies is that they must not enter into the disputed waters of the South China Sea.

“Challenging the core interests of a large, rising country for unknown oil at the bottom of the sea will not only lead to a crushing defeat for the Indian oil company, but will most likely seriously harm India’s whole energy security and interrupt its economic development.

“Indian oil company policy makers should consider the interests of their own country, and turn around at the soonest opportunity and leave the South China Sea,” it was quoted as saying.

Chinese anger is directed at the oil and gas exploration agreement between ONGC Videsh and PetroVietnam in the South China Sea. The agreement, signed during the recent visit to India by Vietnam’s President Truong Tan Sang, says the Financial Times, interrupted “the positive mood music” from a high-profile visit to China by Nguyen Phu Trong, the head of Vietnam’s ruling Communist Party. The timing seems to have upset China: the deal was signed in New Delhi on Oct. 12 – a day after Trong arrived in Beijing.

Relations between the ONGC and PetroVietnam date back to the 1980s, and ONGC is not the only multinational company interested in tapping offshore exploration opportunities in Vietnam, two facts that make Beijing’s outburst perplexing.

China has also been warning Philippines off the South China Seas. On Monday, it called for “other countries” to respect its agreement with Vietnam on maritime issues, the state news agency Xinhua reports.

“The fact that China and Vietnam have agreed to settle maritime disputes through negotiations has nothing to do with a third party. We expect the third party to respect the efforts by the countries concerned to resolve the disputes through negotiations,” Foreign Ministry spokesman Liu Weimin said at a daily press briefing.

Xinhua said Liu’s comments came after the Philippines called for a multilateral approach, rather than a bilateral agreement, to resolve disputes over the South China Sea.

How relations between India and China develop is keenly watched in the West for obvious reasons. Some strategic experts in London, who deal with both India and China, advise caution on how to read Beijing’s utterances on the ONGC-PetroVietnam deal. “I’d wait for a statement from the Chinese foreign ministry,” said one who has recently returned from visits to Beijing and New Delhi.

According to him, the sense in New Delhi is that India will be much more competitive in how it deals with its largest trading partner – a view that also finds an implicit mention in the Chinese editorial. He also speaks of an acknowledgement in both Beijing and New Delhi of the need for greater investments to boost the economic partnership between the two countries.

Growing their economic relationship appears more imperative in the current global climate. But there are difficulties, as underlined by a report in today’s (17th Oct) Financial Times by the paper’s Beijing bureau chief Jamil Anderlini. He says there are reports that dozens of factory owners in the eastern city of Wenzhou – the first city to host private businesses when China liberalized in 1978 – have fled in recent weeks, leaving behind unpaid workers and “mountains of debt.”

Wenzhou’s problems, caused by a fall in global demand for Chinese goods, rising costs of production and unsustainable levels of debt, “are a sign that a hard landing is imminent for the nation,” says the excellent report. There is speculation that China’s economic growth model – based on exporting goods at prices that are unbeatable because of cheap labour, capital, energy and land – could be coming to an end.

“…Minimum wages are rising more than 20 percent a year in many areas, and land is increasingly scarce and expensive. In addition, the government is reducing the supply of cheap credit and has moved to liberalise prices for energy and other utilities. Meanwhile, the flood of investment in new factories, roads, airports and housing estates that has been the main driver of growth looks increasingly unsustainable,” the FT report says.

To come back to Chinese utterances, according to the Journal of Energy Security, China’s recent military/confrontational approach over the South China Sea reflects “a new reality geared to China’s gaining self-confidence as a rising superpower in search of energy security in a multi-polar world beset with many uncertainties.”

In addition, a bit of foreign distraction probably comes in handy when you are confronted with some real economic problems at home.